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and threatens the industry’s continued viability. The significant economic impact of the timeshare industry throughout the country is currently being interrupted, and the jobs and tax revenues that it has a history of creating are at significant risk. Of the $12.6 billion in timeshare loan portfolios, many of these loans are funded by hypothecation facilities from a variety of sources that will mature in 2009—banks and other debt instrument lenders. Over the next few years, these maturities will increase with no substitute of capital in sight. In addition, and very importantly, many larger developers issue and sell asset-backed securities (ABS) as a primary source of funding their businesses. Traditional institutional investors in timeshare asset-backed securities, such as life insurance companies, have pulled back from investing in this and other consumerbacked markets, largely due to extreme risk aversion to consumer credit exposure. Timeshare developers face the very difficult challenge of refinancing maturing debt or funding liquidity requirements through the ABS markets at a time when there is virtually no liquidity available. The Federal Reserve created the Term Asset-Backed Securities Loan Facility (TALF) to help market participants meet the credit needs of households and small businesses by supporting the issuance of asset-backed securities collateralized by auto loans, student loans, credit card loans, equipment loans, floor-plan loans, insurance premium finance loans, loans guaranteed by the Small Business Administration, residential mortgage servicing advances, or commercial mortgage loans. Questions about TALF Key questions include the following: • What types of business entities and institutions may borrow from the TALF? Eligible business entities or institutions include entities organized as limited liability companies, partnerships, banks, corporations, and business or other non-personal trusts. • Is the TALF designed to provide loans directly to businesses or consumers? No, the TALF is designed to increase credit availability for businesses and 34 consumers by facilitating renewed issuance of ABS backed by loans to consumers and businesses at more normal interest rate spreads. The $10 million minimum loan size and requirement that all loans be secured by eligible collateral will likely make direct borrowing from the TALF infeasible for businesses and consumers. • Who may borrow under the TALF? Any U.S. company that owns eligible collateral may borrow from the TALF, provided the company maintains an account relationship with a primary dealer. An entity is a U.S. company if it is (1) a business entity or institution that is organized under the laws of the United States or a political subdivision or territory thereof (U.S.-organized) and conducts significant operations or activities in the United States, including any U.S.-organized subsidiary of such an entity; (2) a U.S. branch or agency of a foreign bank (other than a foreign central bank) that maintains reserves with a Federal Reserve Bank; (3) a U.S. insured depository institution; or (4) an investment fund that is U.S.-organized and managed by an investment manager that has its principal place of business in the United States. An entity that satisfies any one of the requirements above is a U.S. company regardless of whether it is controlled by, or managed by, a company that is not U.S.-organized. Notwithstanding the foregoing, a U.S. company excludes any entity, other than those described in clauses (2) and (3) above, that is controlled by a foreign government or is managed by an investment manager, other than those described in clauses (2) and (3) above, that is controlled by a foreign government. Looking Ahead As you may know, the multi-trillion dollar commercial real estate markets have also experienced considerable turbulence this past year. As a result, the Federal Reserve expanded the eligible collateral for the TALF program to include commercial mortgage-backed securities (CMBS). On August 18, 2009, the U.S. Federal Reserve and Treasury jointly announced that they approved extending TALF loans against newly issued ABS and legacy CMBS through March 31, 2010. Also, because new CMBS deals can take a significant amount of time to arrange, the Federal Reserve and Treasury approved TALF lending against newly issued CMBS through June 30, 2010. The Federal Reserve and Treasury had previously authorized TALF loans through December 31, 2009. In addition, the Federal Reserve and Treasury announced that they are holding in abeyance any further expansion in the types of collateral eligible for the TALF. The securities already eligible for collateralizing TALF loans include the major types of newly issued, triple-A-rated ABS backed by loans to consumers and businesses, and newly issued and legacy triple-A-rated CMBS. Given that ARDA had previously met with the FRBNY and that timeshare was already “in the queue” for further consideration as an eligible asset class of the consumer ABS loan facility, ARDA has a request into the New York Federal Reserve Bank to provide further clarification and guidance relative to moving forward. More on this as things develop… Comprehensive Immigration Reform ARDA strongly believes any reform on this issue should accomplish the following: • Be comprehensive, addressing both future economic needs for future workers and undocumented workers already in the United States; • Create a program that allows hard working, undocumented workers to earn legal status while they remain in the country; • Strengthen the rule of law by establishing clear, sensible immigration laws that are efficiently and vigorously enforced; Developments • October 2009

October 2009 Developments

Table of Contents for the Digital Edition of October 2009 Developments

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